Memorandum by Reform (SAV 03)
REDUCTIONS IN
THE COSTS
OF THE
PUBLIC SECTOR
WORKFORCE, INCLUDING
THE NHS
(Extract from Haldenby, A. et al (2009), A front
line. London: Reform)
1. The Prime Minister and the Leader of
the Opposition have said that they will cut public spending and
protect frontline services. They are wrong for two reasons. The
basic cost of frontline services means that the deficit can't
be sufficiently reduced without tackling the front line. Research
for this paper indicates that the public sector workforce needs
to reduce by at least one million people (15% of the total) if
the structural deficit is to be eliminated, over a period of years.
Jobs will fall by the greatest amount in the services that have
seen greatest increase, such as the NHS. The rates of natural
wastage are so high that relatively few redundancies will be needed,
although some will be.
2. Contrary to popular perception, the great
majority of the public sector workforce are front line workers.
Of the 1.4 million people working in the NHS, for example, only
just over 200,000 provide administrative support. Since 1999,
the central civil service has grown by 5% compared to a 30% rise
in the NHS headcount.
3. More importantly, if public services
are to improve radically, as all Parties want, then the front
line needs to change radically too. Measures such as sickness
absence and staff morale show that the public sector workforce
performs significantly worse than the private sector. "Performance
management" has meant answering to central targets rather
than the real management task of achieving an outcome within a
budget. Financial management is extremely weak. The root cause
is a lack of accountability whether to the users of services,
to local electorates or (for senior civil servants) to Ministers.
Tackling the deficit means changing the public sector fundamentally,
from unmanaged, bureaucratic, monopolistic and secretive to managed,
accountable, competitive (where possible) and transparent.
4. Both Government and Opposition have rightly
called for radical reform of public services that makes them accountable
to their users. But with the exception of policing, both have
fought shy of the actual policies that would deliver it. Both
have pledged to hedge around reform of education and in particular
health with limits and constraints. Opposition to change in the
health service is especially misguided since it is the biggest
budget of all and the service most in need of change.
5. It has to be different this time. The
next government will have to achieve the radical reform which
has eluded every other post-War government. A key lesson is that
governments must seize the day and begin reform on day one when
their political capital and mandate are at their highest. The
challenge is so great that the next government should focus on
the following key priorities in its first year:
— Harnessing a united Cabinet to the task.
Only a united Cabinet can take through the programme of change
across Government that is needed. An unequivocal demand for more
for less from Ministers will support public sector managers who
want to do the right thing. That means an end to spending commitments
and opposition to reform, such as pledges to protect the NHS from
change or make the NHS the preferred provider of care.
— Transforming the accountability of public
sector workers. For senior civil servants, this means putting
appointments in the hands of Ministers. For all public sector
workers, it means an end to the culture of a job for life through
transparent fixed term contracts and the end of generalised recruitment,
such as the civil service fast stream. It means greater transparency
over salaries, contracts and performance for every public sector
worker and an end to the civil service monopoly of advice to Ministers.
And it means removing barriers to competition and private sector
delivery. The Bernard Gray review of the Ministry of Defence is
a fantastic example of how independent advice can help Ministers
understand the costs of departments and how to reduce them. Ministers
need to repeat that for every department.
— Reforming the NHS. The NHS is the largest
budget (£110 billion per year). Allowing costs to rise in
the NHS defeats the purpose of making savings elsewhere. Good
NHS managers are ready to reduce costs and improve access by shifting
resources from expensive hospitals into more convenient local
settings, but face political opposition. The NHS needs to be fundamentally
depoliticised by giving people freedom to choose where their share
of the NHS budget is spent, in practice by giving them choice
of Primary Care Trusts.
6. Good public sector managers are ready
to achieve more for less. They take for granted that costs can
be reduced by 20% without reducing quality of service, by redesigning
the front line. Equally government departments are preparing plans
to reduce their spending by between 20% and 30% in the next Parliament.
But they need political leadership to explain to the electorate
the consequences of greater efficiency in the public sector, and
to allow managers to manage. Ministers and their Shadows are not
yet making that case for change. They still confuse the performance
of services with their inputs, such as the size of the workforce.
7. In fact, reform will be positive for
the public sector workforce. The current model traps public sector
workers in low productivity employment. Reforming the front line
will increase productivity and allow sustainable higher wages
in the long term.
REDUCTION IN
THE COST
OF HOSPITAL
SERVICES AND
SERVICE REDESIGN
(Extract from Haldenby, A. et al (2010), Fewer
hospitals, more competition. London: Reform).
8. The NHS should not be immune from the
drive to reduce public spending. The structural deficit in the
public sector is due to sustained over-spending and the largest
part of that spending was targeted on the NHS. The NHS accounted
for 40% of the increase in inputs across the whole public sector
between 1997 and 2007.
9. The closure of hospital services, in
most cases due to a redesign of service provision, will be one
of the best ways for the NHS to reduce activities and control
costs. It is consistent with the long term change in health needs.
Since the conquest of infectious diseases 60 years ago, health
services have defined their core business as short episodes of
hospital-based treatment with the aim of reducing mortality from
coronary heart disease and cancer. Now health services face the
key challenge of improving quality of life for survivors with
longer term conditions and reducing disability.
10. The NHS has been right to reduce hospital
beds by over a third over the last twenty years, from 270,000
to 160,000. But these reductions have mainly been achieved in
specialist care while the acute sector has only seen modest reductions
since the early 1990s.
11. London, the North East and the North
West have the highest density of hospital beds and should be expected
to deliver the greatest closures of services. The North East has
4.13 beds for every 100,000 people compared to 2.54 beds in the
South Central SHA. Similarly there is one acute trust site for
every 73,000 people in the North East, compared to a ratio of
one site for every 196,000 people in the South Central SHA.
12. The Department of Health asked Strategic
Health Authorities to develop proposals to reconfigure services
as part of the 2008 Darzi Review and, following the recession
and the expectation of zero funding growth from 2011, called for
updated plans by March 2010. The London Strategic Health Authority
has published a plan to reduce bed numbers in the capital by a
third, while other Strategic Health Authorities are currently
developing plans to meet the spending squeeze.
13. The reconfiguration of services will
be most effective if they are local initiatives carried out by
locally accountable managers. But the current policy framework
militates against this. While Primary Care Trusts are nominally
in charge of individual reconfigurations, the Department of Health
has sought to centralise decision-making over the last three years.
As such, there is a risk that service redesigns become top-down
exercises, which would not answer local needs and would lack local
legitimacy.
14. A further constraint on the ability
of Primary Care Trusts to effectively reconfigure services is
the reluctance of Ministers and MPs to support local hospital
reconfigurations. The Conservative Party is wrong to pledge a
moratorium on service redesign should it win election. Such a
moratorium will hold back the improvement in efficiency that the
service needs.
15. The ability of competition to drive
up health standards and productivity becomes especially important
when service redesigns are being undertaken. Some take the opposite
view, believing that greater competition will lead to greater
capacity and so increasing cost. But this fails to consider the
ability of competition to lead to productivity improvements. These
can mean that the supply of health services can expand even when
bed, ward and hospital numbers are falling.
16. In recent years NHS leaders have turned
to integrated care as a model of health services that has the
potential to deliver higher quality at reduced cost. However,
without competition and reform on the front line, integrated care
threatens to transfer bad working practices to another part of
the system without reducing costs. Real innovation will come from
reforming the front line, not simply driving change from the centre.
17. Key ways in which better standards and
improved productivity could be driven in the health system include:
— Commission the service not the facility.
Commissioning should not be used as a mechanism for protecting
numbers of beds, wards and hospitals—commissioning should
focus on health outcomes not inputs into the service.
— Commit to greater plurality in supply
and reverse the "NHS preferred provider" policy. The
ability of competition to drive better standards and productivity
growth is crucial for ensuring that spending reductions do not
lead to "salami slicing cuts" and a decline in quality.
— Commit to plurality of supply within
existing settings—such as through approaches like service
line management (where decision making and budgets are devolved
to specific, clinically-led operational units).
— Ensure the rules for competition are
clear, consistent and enforceable. This could involve asking the
NHS Co-operation and Competition Panel to review existing provision
(as well as changes to that provision).
— Incentivise service redesign through
reform to make the NHS locally accountable and by clarifying the
ability of Primary Care Trusts (PCTs) to retain some of the financial
savings that they achieve from improvements in health outcomes
and productivity. > Incentivise service redesign through considering
reforms such as giving patients a choice of PCT (to ensure that
ongoing pressures for service redesign reflect the preferences
and needs of consumers).
Andrew Haldenby
Reform
March 2010
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